Runway on River at Mumbai Airport Shows Modi’s Challenges

Mangrove and shrubs stretch into the distance on the site of the future airport to serve Mumbai on the outskirts of Navi Mumbai. Cost projections have climbed to 145 billion rupees from about 87 billion rupees in 2010, and the estimated start date has been pushed back by at least four years. Photographer: Punit Paranjape/AFP/Getty Images

July 7 (Bloomberg) -- India began planning a second airport
for Mumbai, its most populous city, when Bill Clinton was still
U.S. president. Seventeen years later, bidding on the project
has yet to start.

A river still meanders across the marshy land where as many
as 60 million passengers a year are supposed to fly in and out
of India’s main financial hub. The lack of progress on the
project -- in Navi Mumbai, or New Mumbai -- illustrates the
challenge Prime Minister Narendra Modi faces in fulfilling a
campaign pledge to build more airports, roads and railroads.

Modi in May led his Bharatiya Janata Party to India’s first
single-party majority since 1984, promising to kickstart public
works after political gridlock stalled about $255 billion of
projects. A slow land-buying process, environmental objections
and high borrowing costs are among the impediments in improving
a national infrastructure whose quality was ranked below
Guatemala and Namibia in a World Economic Forum survey.

“The Navi Mumbai project is a disaster,” said Mark D.
Martin, chief executive officer of Dubai-based Martin Consulting
LLC, who advises airlines. “The development costs are going to
be so high that no private party will want to invest.”

Finance Minister Arun Jaitley is expected to detail plans
to boost public-works investment when he presents the new
administration’s first budget on July 10. Delays in implementing
federally funded projects including several railroads have
pushed up costs by more than 1 trillion rupees ($16.7 billion),
according to the Associated Chambers of Commerce and Industry of
India, an industry lobby.

Rising Costs

First proposed in 1997 and approved a decade later by
India’s cabinet, Navi Mumbai International Airport was to be
built on a 1,405-hectare (3,471 acres) site about 35 kilometers
(22 miles) southeast of the existing international airport.

Planned as a public-private partnership to help Mumbai cope
with the projected surge in air passengers to 119 million by
2031, the work involves diverting the Ulwe river that cuts
across the land and building two east-west runways.

Cost projections have climbed to 145 billion rupees from
about 87 billion rupees in 2010, and the estimated start date
has been pushed back by at least four years. The first phase
will be ready by December 2018, according to a June 17 e-mailed
statement from the City and Industrial Development Corp. of
Maharashtra, known as CIDCO, which will be a state-owned
shareholder in the company that will build the airport.

‘Mushy Land’

Settlements have been reached with almost all the villages
in the area to ensure smooth land acquisition, CIDCO Managing
Director Sanjay Bhatia said in a statement June 17.

“I don’t know when the thing can be operational,” Civil
Aviation Minister Ashok Gajapathi Raju said June 25. “I was in
Mumbai and did an aerial survey. It’s a mushy land as of now.”

An index of 18 capital goods manufacturers has surged 24
percent since Modi’s electoral victory on May 16, outperforming
the benchmark S&P BSE Sensex Index’s 7.9 percent increase.
Larsen & Toubro Ltd., India’s biggest engineering company, has
gained 22 percent and GVK Power & Infrastruture Ltd., operator
of Mumbai’s airport, has climbed 29 percent in the period amid
speculation the government will boost spending and accelerate
approvals for roads, ports and power projects.

Roads, Ports

Modi’s challenges won’t be limited to constructing
airports. He needs to spend about 17.6 trillion rupees by 2017
building roads, bridges, ports and railways, according to
estimates of the Planning Commission of India.

As many as 19 port projects, some dating back to 2009, are
in various stages of implementation, according to the shipping
ministry’s website. To take advantage of the nation’s 7,517-kilometer coastline and 199 ports to boost exports, Modi’s
government needs to ramp up work on those.

“India has lagged behind China and the rest of Asia in
terms of infrastructure,” said Sam Mahtani, emerging markets
director at London-based F&C Asset Management Plc, which
oversees about $150 billion. “There has to be a major push on
getting projects on track.”

Delays are holding back India’s global competitiveness,
said Tony Tyler, director general of the International Air
Transport Association, which represents 84 percent of global air
traffic.

“Infrastructure issues persist — with high charges and
capacity shortfalls in key markets such as Mumbai,” Tyler said
in an e-mail.

Private Investment

About half the funds for boosting infrastructure has to
come from the private sector in the form of debt and equity,
according to Deloitte Touche Tohmatsu India Pvt. For ports and
airports, private funding needs to be as much as 80 percent.

For that, Modi needs to reverse the current trend.
Investment by private companies as a percentage of gross
domestic product is estimated to have declined to 9.2 percent in
the year ended March 2013, the lowest in at least nine years,
according to data from the Ministry of Statistics and Programme
Implementation.

The government is trying to get projects cleared more
quickly. Environmental clearances will now be granted online,
Minister of State for Environment Prakash Javadekar said in May.

“The kind of statements coming from Modi and the ministers
he appointed gives the impression he’s serious,” Mahtani said.
Even so, “it will probably take 10 to 15 years to reach
acceptable levels of infrastructure,” he said.